Mortgage Rates went up

The mortgage rates have gone up.

NBC News As most Americans know, thanks to low interest rates, there has been no better timing for buying or refinancing a home in years. Although there are still worries about the short-term economic soundness, the long run seems to be an upward trend in investors' trust with the successful Iraq conflict and the adoption of the President's fiscal stimulus packages. After all, many Economists - such as Lawrence Yun, Sen. economist at the National Association of Realtors, and Celia Chen, Executive Vice President of Residential Property at Economy.com - forecast that if the Federal Reserve eventually raises interest rates in response to a burgeoning US economy and mortgage rates exceed the 6 per cent level, property will become less accessible and the property markets will come to a standstill.

"As we see, interest rates are beginning to move, albeit moderately, until the end of spring. At present, at 5. 4 per cent, mortgage rates could be up to 6 per cent by the end of the year. "For home owners, this could mean that after three years of 6 per cent and 7 per cent house inflation rates, house rates are likely to revert to a plus of 4 per cent.

Whilst the story is that a decline in the residential property markets after a property booming is unavoidable, the only issue is how quickly and how far the decline will go. It is significant if the value drops below 4 per cent because the mean revaluation ratio is about 4 per cent. For example, the International Monetary Fund's Global Economic Outlook Survey in April identified the property bubble as one of the many "threats" to the global economies next year.

Property purchasers have been pampered in recent years. Mortgage rates have not been so low in 40 years at 5. 4 per cent. Indeed, a 6. 5 per cent mortgage interest will be a deal likened to, say, the early 1980s, when mortgage rates were between 11 per cent and 17 per cent.

Consequently, over the past three years billions of Americans have been spending billions of US dollar on homeownership. Indeed, the National Association of Realtors recently proclaimed that despite the three-year property run in the first three months of 2003, another house sale hit a record: 6,68 million.

As mortgage rates increase, there will be a thawing in mortgages, and as mortgages fall, house prices will fall. "Mortgage rates will continue to be robust even if they increase by 1 per cent. Much of the property bubble was also due to many Americans looking for new places to spend their cash after the technology stock market collapsed.

For the past three years, Americans who saw their 401(k)s disappear and their asset allocation fall into two figures have found security in homes where house values have risen by an amazing 6 per cent. Making property less attractive as an asset and starting to put their cash elsewhere would slow down the sector.

If trust is high, Americans can get enthusiastic about more risky investment further away from home. Not only is the bigger problem how a deceleration in residential construction will impact individual property, but what will the US economy's rebound look like without the residential sector - especially as property has been the nation's main business stick in the last three years?

"We expect residential construction activities to decelerate, with the sharpest slowdown in 2004," says Economy.com's Chen. "Simultaneously," Chen added, "other aspects of the economic cycle, especially corporate investments, will gain momentum and more than offset the slowdown in the real estate markets.

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